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Indian Government Deals Small Businesses a Hard Blow

New Orleans For years the India FDI Watch Campaign supported by ACORN International has campaigned to make sure that any modification in foreign direct investment would protect the 20,000,000 small retailers, birani shop keepers, brokers, and others would be done responsibly. Working to build a large, diverse national coalition, the India FDI Watch Campaign has managed to forestall initiatives which would have allowed foreign big box operators like WalMart, Carrefour, Tesco, Metro and others from the India market. This week the government issued new regulations which would allow 51% ownership of multi-brand retail outlets. The protest in Parliament by parties of both the left and right was so significant that all business was suspended in reaction to the unilateral movement of the government in this area.

FDI in multi-brand retail may be permitted to the extent of 51 per cent with government approval.

This means that foreign retailers would have commanding position in the venture. This is not in the spirit of the `calibrated’ approach suggested by DIPP.

Retail sales locations may be set up only in cities with a population of more than 10 lakh (1 million) as per 2011 Census and may also cover an area of 10 km around municipal urban agglomeration limits of such cities. Retail locations will be restricted to areas as per the master zonal plans of the cities concerned and provisions will be made for requisite facilities such as transport connectivity and parking.

It allows them to open stores in around 53 cities. These cities generate more than half of income in India. The condition gives a free run to foreign retailers to directly compete with existing businesses in the established and natural markets with different sizes of superstores in as many numbers as they wish.

Minimum amount to be brought in as FDI by a foreign investor would be around $100 million.

It’s a pittance considering that super-retail is a business of scale.

At least 30 per cent of the procurement of manufactured processed products shall be sourced from small industries that have total investment in plant and machinery not exceeding $250,000 (around INR1.25 crore). This investment refers to the value at the time of installation, without providing for depreciation.

It has potential to threaten our MSME sector by opening a floodgate of imports denying the country any opportunity to enhance its skill and base of production. It has nothing to do about protecting domestic small industry as the cap is applicable for MSMEs world wide.

The government will have the first right to procurement of agriculture products.

This is far from being sufficient and Govt. need to have power to buy agricultural products from superstores at pre-specified prices in case of food sortage.

It is likely that with reduced tariffs under various multilateral/regional/bilateral free trade agreements superstores would import these products.

At least 50 per cent of the total FDI brought in shall be invested in back-end infrastructure. Back-end infrastructure will entail capital expenditure on all activities, excluding that on front-end units. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce, infrastructure, etc. Expenditure on land cost and rental, if any, will not be counted for purposes of back-end infrastructure.

Back end infrstructure defined as any expenditure other than on front end is fallacious. Office expenditures would also be counted as investment in back end infrastructure.

Self-certification will be done by the company to ensure compliance of all the conditions.

This actually undone all the riders. There is no monitoring machanism proposed to ensure compliance of conditions.

Myths being propogated by vested interests

Fact

States can deny trade licences

Corporate retailers have already used court to get trade licences. So even if an authority (state/municipal/panchayat) deny a trade license, corporations are likely to get court order citing trade as fundamental right.

Corporatizing the supply chain would reduce gap between producers and consumers prices

There is no such obvious evidence. Superstores squeeze both ends of the supply chain by buying cheap and selling dear. Its widely found that final product sold in the superstores are higher.

Small farmers would benefit

Superstores generally deal only with big farmers. There is no such international precedent.

FDI in retail would help curb inflation

It could infact lead to the opposite. Prices in India are comparatively stable.

It will wipe out middlemen

Superstores are giant middlemen and do deal through a chain of agents.

Corporatizing retail would create 10 million jobs

The projection is baseless and meant to influence debate. The efficiency of corporations comes from being low labour intensive. While one billion USD of turnover currently generates 104,821 jobs in current Indian retail, it only generates 3,241 jobs in average global retailers. The autonomus growth of Indian retail market with the projected annual compound rate of 10 to 12% is capable of generating many more jobs without FDI in retail.